The highlight of a busy political year in 1998 was the general election in September, in which the ruling Social Democrats slumped to their worst result in 70 years--but still clung to power. Prime Minister Göran Persson’s parliamentary minority was sharply reduced by voters angry at persistently high unemployment and cuts in Sweden’s cherished welfare system. The Social Democrats saw their number of seats fall from 161 to 131 in the 349-member Riksdag (parliament).

Elsewhere, this might have precipitated a change of government. Persson, however, was able to stay in office for two reasons. First, the Social Democrats, though weakened, remained unchallenged as the largest party. This was chiefly due to the failure of the main opposition Moderate Coalition Party to capitalize on the government’s unpopularity. Led by Carl Bildt, the former peace envoy to Bosnia and Herzegovina, the Moderates added just two seats to their tally of 80 from the previous election in 1994. Also, Persson shored up his power base by agreeing immediately after the election to an informal alliance with two left-wing parties, the former communist Left Party and the Greens. The Social Democrats had spent the previous four years in an ad hoc alliance with the rurally based Centre Party, which also fared poorly in the election.

Fears of a possible leftward lurch in government policy caused brief jitters on financial markets. Investors were subsequently mollified by assurances from Persson and his finance minister, Erik Asbrink, that the government would not be pressured into loosening fiscal policy.

Two weeks after the election, Persson unveiled one of the most sweeping Cabinet reshuffles in Swedish history, with eight ministers leaving their posts. Among the newcomers was Mona Sahlin, the former deputy prime minister, who in 1995 had been poised to become the party’s new leader before she was forced to resign over her private use of a government credit card. Sahlin’s political rehabilitation was ensured by her appointment as a junior minister in a new "superministry" responsible for promoting economic growth.

Outside the political arena, the year got off to a bright start with Stockholm starting a 12-month stint as Cultural Capital of Europe. In February the business world came under the microscope after controversy arose over high pay awards to top corporate executives. The issue was ignited when Stora, a leading forestry company, sacked its chief executive but not before granting him a SKr 64 million severance package (SKr 1 = about U.S. $0.13). The size of the payment, initially concealed from company stockholders, prompted the resignation of Stora’s chairman and government demands for companies to regulate executive pay more rigorously.

In October attention shifted to the announcement of proposals for far-reaching cutbacks in Sweden’s military spending. Defense department officials, facing intense political pressure to curb expenditures, presented a policy document aimed at effectively freezing defense spending at its year-2000 level for the first 10 years of the next millennium. Among a host of other measures was a reduction in the universal conscription service and the mothballing of aging military hardware. Reflecting significant changes in northern European security requirements following the collapse of the Soviet Union, the measures were aimed at achieving a government savings of SKr 2 billion a year over the next five years. They were to be debated by the Riksdag during the first few months of 1999.

For many Swedes the year drew to an end on a distressing note. Two tragedies--a fire in Göteborg that killed 63 youths at a discotheque and the murder of a four-year-old child by two young boys, aged five and seven--prompted outpourings of national grief and soul-searching. The fire, in late October, was the worst in Sweden during peacetime. Most of the dead were immigrant teenagers unable to escape from an overfull dance hall. The killing of the four-year-old boy occurred in August, but the culprits--who were below the age of criminal responsibility and would not be tried--were not discovered until November.